Global: GCC Markets witnessed challenging year

Global Investment House- The year 2009 turned out to be quite a volatile year for the markets. First, the deepening of financial crisis, led all but UAE market to decline further in the first quarter

Global Investment House- The year 2009 turned out to be quite a volatile year for the markets. First, the deepening of financial crisis, led all but UAE market to decline further in the first quarter of 2009 when credit default swaps (CDS) on sovereign debt of economies in the region touched record high levels and it was complete mayhem. However, thereafter the markets rebounded on the back of government stimulus packages which resulted in rally across global markets in the month of March. Following footsteps of their western counterparts, the governments in the GCC region took several steps to stimulate the economy and reduce the impact of financial crisis. But again in June, the markets were hit by the Saad and Al Gosaibi group episode which negatively impacted the markets, in particular the banking stocks on concerns of exposure and subsequent impairments to the group.

Nonetheless, continuous rally in oil prices and the improvement in commodity markets positively impacted the business activities and corporate spending in the later part of 2009. But again, Dubai World debt woes hit the markets before the Eid holidays. The general mood of the investors was reflected by a 26.7% decline in the DFM index, in the early few trading days following the moratorium announcement. Soon after, the government of Abu Dhabi made a surprise announcement by injecting US$10bn worth of aid to help Dubai cover its debt obligations. News of the payment boosted share markets in the UAE. DFM index jumped 10% higher, while Abu Dhabi's rose more than 7% in a day.

For the year, Saudi Arabia market rose the most among the regional markets with the Tadawul All Share Index witnessing a gain of 27.46% YoY to reach 6,121.76 points. This was followed by Oman and UAE market respectively. The MSM-30 Index ended the year 2009 at 6,368.8 points, thereby recording an increase of 17.05% YoY while UAE market represented by NBAD index grew by 11.88% to close at 6,662.57points. “Global” Qatar market index rose 8.94% and closed at 562.09points

Bahraini market continued to decline consistently during the year with the “Global” Bahrain index closing at 116.7points, a fall of 17.94% YoY. The capital markets have been quite unforgiving in the case of Bahrain with least oil reserves and the highest government debt in percentage of GDP terms. Kuwait was the other market that closed in red with the “Global” Share index falling 9.78% for the year to close at 186.23points.

Trading activities ended 2009 on a mixed note. Which the total volume traded increased by 16.50 percent to reach 322.40bn shares, the aggregate traded value declined by 40.30 percent and stood at US$512.50bn. The increase in volume is attributed to the two biggest markets in terms of volume trade viz. UAE and Kuwait. While UAE stocks markets, represented by the Dubai Financial Market and the Abu Dhabi Securities Exchange, increased by 17.4% to reach 148.3bn, Kuwait Stock Exchange saw a surge of 31.40 percent in its traded volume. In terms of percentage Muscat Stock Exchange, recorded the highest change with a 45.07 percent jump. Effective July 1’09, the MSM-30 Index was converted from “full float index” to a “free float index” with reduction in capping from 20% to 10%. This instigated reshuffling of portfolio, which resulted in higher volumes.

In terms of total traded value, all GCC stock markets posted declines with the aggregated value declining to US$512.50bn, a 40.30 percent drop from previous year. Three biggest markets in the region - Saudi Arabia, UAE and Kuwait – posted a decline in trading value. Saudi Arabia posted a decline of 35.6% during the year while UAE and Kuwait posted declines of 54.7% and 40.3% in trading value respectively during the year. The Bahrain Stock Exchange saw its total traded value decline by 77.2 percent making it the biggest decliner among the GCC markets. The total transactions for the Gulf markets declined by 27.4 percent to reach 43.91mn during 2009.

The number of listed companies in the GCC markets stood at 695 by the end of 2009. There were a total of 16 new listings during the past year, with the Saudi market accounting for 9 of these listings. The IPO activity remained subdued throughout the year due to difficult market conditions. There were a total of 12 IPOs during the year in the region of which 11 were in Saudi Arabia alone as opposed to 25 IPOs in GCC last year. A total of US$1.98bn was raised from these IPOs, a decline of 82.97 percent over US$11.67bn raised in 2008. The largest IPO during the year was Vodafone Qatar with offering size of US$952.05mn while National Petrochemical Company of Saudi Arabia offered a total of US$639.95mn. Excluding these two, the IPO size in 2009 stood at a miniscule US$395.3mn.

Market capitalization for the GCC markets during 2009 stood at US$683.90bn, an increase of 11.89 percent compared to the previous year. The external environment is gradually improving, oil prices are rising, external financing conditions are easing, and an incipient global recovery is under way. After fluctuating between US$30 and US$40 per barrel in early 2009, oil prices rose to about US$70 per barrel in August and, based on futures markets, are projected to remain over US$75 per barrel in 2010. Spreads on sovereign credit default swaps in the region have fallen continuously since their peak in the first quarter of 2009—by more than 650 basis points in the case of Dubai, from a high of 944 basis points on February 17. The GCC economies are likely to rebound in 2010. IMF in its October 2009 report has revised its 2010 outlook on GCC to a growth of 5.2% (up 1.0% over its May estimate) in light of recent developments. We are positive for 2010. But still, we believe that it might take some more time for the regional markets to stabilize.